Presentation on theme: "Presented by Bob Barrow, CIC, CWCA, CBWA. Employer assumes all or a portion of the risk for health benefits Administrative options available to employers."— Presentation transcript:
Presented by Bob Barrow, CIC, CWCA, CBWA
Employer assumes all or a portion of the risk for health benefits Administrative options available to employers choosing self-funding: Administrative Services Only (ASO) Third Party Administration (TPA) Self-Administrator Fixed Costs Variable/Claims Costs
Administrative Fee: Fee charged for claims adjudication, billing, eligibility, customer service, plan document maintenance, access fees, managed care fees Setup Fee: One-time charge for the input of eligibility and benefits in order for the plan to be administered Expected Claim: Total claims underwriter expects you to have in one policy year, actuarially determined from your past claims experience
Specific Stop Loss Insurance: Purchased to protect you when eligible claims during the policy year on any one individual exceed the specific liability limit When this does occur, you are reimbursed by the insurance company Maximum: This is 125% above your expected claims level Claims that exceed this level are reimbursed by Stop Loss carrier 125% = Aggregate Attachment Factor; percentage can vary, but 125% is most common
Aggregate Stop Loss Insurance: Protects you from eligible claims for the entire group that exceed the annual aggregate liability limit If eligible claims for entire group exceed the aggregate liability limit, insurance company will reimburse you for those claims at end of policy year Many insurance companies offer “accommodation agreement” for monthly fee Special contract provision provides monthly reimbursement of aggregate claims
Fully-Insured covers claims incurred in 12 months paid in 24 months 12/24. Jan. 2014Jan. 2015Jan Jan Mar. 2015Mar months Self-Funded Contracts Incurred Claims 15 months Self-Funded Contract Incurred Claims 12 months Next Contract Year Incurred Claims 15 months Next Contract Year Incurred Claims
Self-Funded covers claims incurred in 12 months 12/12 or 12/15 paid in 15 months. Jan. 2014Jan. 2015Jan Jan months Fully-Insured Contracts Incurred Claims 24 months Fully-Insured Contract Paid Claims 12 months Next Contract Year Incurred Claims 24 months Next Contract Year Incurred Claims
Specific/Individual Stop Loss: A shock loss may be defined as an abnormally large and unexpected claim. Could be the result of severe accident or serious illness Insurance companies are prepared for such occurrences – build margin into premium to help offset the financial impact shock losses can cause
What can the self-funding employer do to protect assets against such losses? Stop Loss Insurance is designed to offer effective protection against excessive claims by limiting the amount of risk on any individual insured. 100% of covered losses you pay for any individual in excess of the individual policy year deductible will be reimbursed for the remainder of the policy year.
Aggregate Stop Loss: The Ultimate Protection! The expected claims of any given group can usually be predicted with a fair amount of accuracy and thus become budgetable. But, when these expected claims are incurred by a surprisingly high number of insured's, an unforeseeable fluctuation occurs. The impact of any unpredictable fluctuation could jeopardize the financial stability of a company. Aggregate Stop Loss Insurance is a precautionary measure designed to protect you from the unknown, guarding your assets and preserving cash flow.
The amount funded but not reimbursed ($25,000 in this example) will apply toward the Annual Aggregate Deductible. Example of how a $127,000 claim would be handled: Employer pays the deductible amount: $25,000 If the individual Stop Loss Deductible is $25,000… …the Insurance Company pays the excess over the deductible amount: $102,000
Flexibility in Plan Design Self-funded plan not bound by state mandates. ERISA plans preempts State regulations. Risk Management effectiveness through Stop Loss Insurance Employer may choose the amount of risk to retain and the amount to be covered under stop loss protection. Under an insured arrangement, insurance company sets the pooling level. Protection from monthly swings can be controlled through a Monthly Aggregate.
Tax Savings No premium tax for the self-funded claim fund; thus, an immediate savings equal to the amount of premium tax is realized. (Average state tax is 2%) Assuming annual premium of $626,000 x 2% = $12,520 in potential savings to you! Retention Administration of the plan less expensive under a self-funded arrangement without sacrificing a reduction in services Also the option of choosing services à la carte
Additional Cash Flow Employer can sometime hold onto reserves Assuming annual premium of $626,000: Projected reserves = $130,416 ($626,000/12 x 2.5). Self-funding implies that employer must fund for incurred but unreported reserves. Assuming “reserve” is maintained in an interest-bearing account, employer may be able to regard it as a source of income. Therefore, additional income is generated. Margin Insurance companies typically charge 3-10% for margin (for fluctuations in claims) Under self-funded arrangement, this component is eliminated
Risk Assumption Employer assumes risk between the normally anticipated claim level and Stop Loss Coverage level Asset Exposure Employer’s assets are exposed to any liability created by legal action against the self-funded plan Fiduciary Responsibility Employer is responsible
Self Funded Plans Under ACA Many of the ACA’s reforms affect all group health plans, regardless of whether they are fully insured or self-insured. For example, among many other reforms, self-insured and fully insured plans must comply with the following ACA provisions: Dependent coverage for adult children up to age 26; Coverage of preventive health services without cost-sharing (grandfathered plans are exempt); No rescissions of coverage, except in the case of fraud or intentional misrepresentation of material fact; No lifetime dollar limits on essential health benefits and annual dollar limits are restricted until 2014 (in 2014, all annual dollar limits on essential health benefits are prohibited);
Improved internal claims and appeals process and minimum requirements for external review (grandfathered plans are exempt); and Effective for 2014, no waiting periods exceeding 90 days. Both self-insured and fully insured plans are subject to the ACA’s requirement to provide participants and beneficiaries with the uniform summary of benefits and coverage. Sponsors of self-insured and fully insured plans alike must also comply with the ACA’s requirement to report the aggregate cost of employer-sponsored group health plan coverage on their employees’ Forms W-2. In addition, sponsors of self-insured plans and issuers of fully insured plans are required to pay Patient-Centered Outcomes Research Institute (PCORI) fees under the ACA.
REINSURANCE FEES AND EXEMPTION The ACA includes reforms related to the allocation of insurance risk through reinsurance, risk corridors and risk adjustment. The purpose of these reforms, which are effective in 2014, is to protect against risk selection and market uncertainty as insurance changes and the Exchanges are implemented. Self-insured plans are not subject to some of these provisions. However, under the ACA, each state must have a transitional reinsurance program to help stabilize premiums for coverage in the individual market during the first three years of Exchange operation ( ). Administrators of self-insured plans are required to contribute to this program.
Calculation and Payment of Fees The March 1, 2013 final rule provides that HHS will collect the reinsurance fees from issuers and plan sponsors in all states, including states that elect to operate their own reinsurance programs. The amount of the reinsurance fees will be based on a national per capita contribution rate, which HHS will announce annually. For 2014, HHS announced a national contribution rate of $5.25 per month ($63 per year). For 2015, the annual contribution rate is $44 per enrollee per year, about $3.67 per month. The national contribution rate is calculated by dividing the sum of three statutory components (the reinsurance payment pool, the U.S. Treasury contribution and administrative costs) by the estimated number of enrollees in plans that must make reinsurance contributions.
REFORMS THAT DO NOT APPLY TO SELF- INSURED PLANS Essential Health Benefits Package Beginning in 2014, non-grandfathered insurance plans in the individual and small group markets must offer a comprehensive package of items and services, known as essential health benefits. This requirement applies to plans offered inside and outside of the state insurance exchanges (Exchanges). The ACA identified in broad terms 10 benefit categories that must be included as essential health benefits. Within these broad categories, the individual states have flexibility to select their own benchmarks for defining essential health benefits. Self-insured group health plans, health insurance coverage offered in the large group market and grandfathered plans are not required to cover essential health benefits.
Medical Loss Ratio Rules The medical loss ratio (MLR) rules became effective on Jan. 1, These rules require health insurance issuers to spend 80 to 85 percent of their premium dollars on medical care and health care quality improvement, rather than administrative costs. Issuers that do not meet these requirements must provide rebates to consumers beginning in The MLR rules do not apply to self- insured plans.
Small Employer Tax Credit Beginning with 2010 tax years, the ACA created a tax credit for eligible small employers that provide health care coverage to their employees. In order to be eligible for the health care tax credit, an employer must: Have fewer than 25 full-time equivalent employees (FTEs); Pay average annual wages of less than $50,000 per FTE; and Pay at least half of employee health insurance premiums (based on single coverage).
For tax years 2010 through 2013, the maximum health care tax credit is 35 percent of premiums for small business employers and 25 percent of premiums for small tax-exempt employers. An enhanced version of the credit will be effective in The tax credit is only available for the purchase of health insurance coverage, and so it does not apply to self-insured coverage.
Review of Premium Increases The ACA required HHS to establish a process for the annual review of unreasonable increases in premiums for health insurance coverage. HHS’s process provides that effective Sept. 1, 2011, issuers seeking rate increases of 10 percent or more for non-grandfathered plans in the individual and small group markets must publicly disclose the proposed increases, along with justification for the increases. Starting Sept. 1, 2012, the 10 percent threshold may be replaced with a state-specific threshold to reflect insurance and health care cost trends particular to that state. The increases will be reviewed by either state or federal experts to determine whether they are unreasonable. This review process for rate increases applies to issuers in the small group and individual markets. However, it does not apply to grandfathered health plan coverage or to excepted benefits (for example, liability insurance, workers’ compensation insurance, limited scope dental or vision benefits, long-term care or nursing home benefits and hospital indemnity insurance). It also does not apply to self-insured plans.
Annual Insurance Fee The ACA’s revenue raising provisions require certain health insurance providers to pay an annual fee beginning in Issuers with net premiums in a calendar year of $25 million or less are exempt from the fee. Employers that self-insure their employees’ health coverage are also exempt from the fee.
Insurance Market Reforms Effective for 2014, health insurance issuers must comply with a new set of market reforms. Market reforms that are inapplicable to self-insured arrangements include: Guaranteed Issue and Renewability - Health insurance issuers offering coverage in the individual or group market in a state must accept every employer and individual in the state that applies for coverage and must renew or continue to enforce the coverage at the option of the plan sponsor or the individual. Insurance Premium Restrictions - Health insurance issuers will not be permitted to charge higher rates due to heath status, gender or other factors. Premiums will be able to vary based only on age (no more than 3:1), geography, family size and tobacco use.
Is self-insurance common? According to federal statistics, self-funded plans cover 60 percent of the private-sector workforce—almost 90 million workers and dependents. According to a 2012 Kaiser Family Foundation survey, those numbers include 15 percent of small companies (fewer than 200 workers), and 52 percent of mid-sized companies (200 to 999 workers). What benefits can I self-insure? Health care (indemnity, PPO, POS and HMO only if large enough group) Dental Short-term disability (STD) Prescription drugs Vision care
Annual Deductible Limit Effective for plan years beginning in 2014, the annual deductible for an insured health plan in the small group market may not exceed $2,000 for self-only coverage and $4,000 for family coverage. Self-insured plans are not subject to this cost- sharing limit. However, self-insured plans are subject to the ACA’s out-of-pocket maximum, effective for 2014 plan years. The out-of-pocket maximum applies to all non-grandfathered plans, including self-insured plans. For plan years beginning in 2014, the ACA’s out-of-pocket maximum is $6,350 for self-only coverage and $12,700 for family coverage.
Are there Any Other Options???
Captives are starting to be utilized as a risk financing techniques for benefits. Captives can be structured in several different ways to provide appropriate vehicles for a wide range of risk & circumstances. Any one of the following structures can be considered: Single Parent Captive: Often described as 'pure' captives, these are companies with a single owner to whom they provide insurance coverage. A risk manager or financial officer at the parent company usually monitors them. A domiciled captive insurance manager manages the captive.
Group Captive: A captive formed by an established trade association or members of an industry to provide insurance coverage for members. Ownership rests with the association or individual members. Liability risks such as medical malpractice are frequently insured in this way. They usually have a financial expert at the association level with prime responsibility, or outsource this function to a captive insurance manager. Rent-a-Captive: Insurance companies that provide access to captive facilities without the user needing to capitalize his own captive. The user pays a fee for the use of the captive facilities and will be required to provide some form of collateral so that the rent-a-captive is not at risk from any underwriting losses suffered by the user.
Protected Cell Company: Protected cell companies (PCCs) are essentially Rent- a-Captives with a special difference. PCCs allow renters to shield their capital and surplus from other renters in the Captive as long as the Rent-a-Captive's owner remains solvent.
Typical Captive Cash Flow
Thanks for your attention! Rev. SV 3/09 For more information on self funded plans or captives or to subscribe to our free monthly ACA Brief: Bob Barrow Barrow Group